Private Pensions and Annuities. 1. Except as provided in Article 22 (Governmental Functions), pensions and other similar remuneration paid to an individual shall be taxable only in the Contracting State of which he is a resident.
Private Pensions and Annuities. (1) Except as provided in Article 18 (Government Service), pensions and other similar remuneration in consideration of past employment derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. If the beneficial owner of pensions and other similar remuneration is a resident of the other Contracting State, the tax so charged may not exceed 15 percent of the gross amount thereof.
Private Pensions and Annuities. Paragraph 1 provides that pensions in respect of past employment which are derived by a resident of one of the Contracting States from private sources in the other Contracting State may be taxed by both States, but the tax imposed by the State of source may not exceed 15 percent of the gross amount paid. Article 7 (Source of Income) defines the source of a pension as where the services to which it relates were performed. This provision does not apply to pensions in respect of government service, which are covered in Article 18 (Government Service), or to social security benefits, which are covered in Article 22 (Social Security Payments). The rule of this paragraph differs from that of the U.S. Model, which reserves the exclusive right to tax private pensions to the country of residence of the recipient (except that the United States, under the “saving clause” may also tax its nonresident citizens); it is a concession to Indonesia's interest, as a developing country, in preserving source-basis taxation. Paragraph 2 provides that annuities paid to a resident of one of the Contracting States may be taxed only by that State. Paragraph 3 provides that alimony and child support payments made by a resident of one of the Contracting States to a resident of the other Contracting State are taxable only by the first State, i.e., the State of which the payer is a resident. Thus, in accordance with the Code rules, alimony paid by a U.S. resident to an Indonesian resident will be subject to U.S. tax, withheld by the payer, but there will be no U.S. tax liability on child support payments by a U.S. resident to an Indonesian resident. Both are exempt from tax in Indonesia. In the reverse case, an Indonesian resident paying alimony or child support to a U.S. resident is required to withhold Indonesian tax in both cases. The recipient is not subject to U.S. tax in either case; as this provision is an exception to the saving clause (see paragraph 4(a) of Article 28 (General Rules of Taxation)), the U.S. resident recipient will be exempt from U.S. tax, rather than Subject to tax with a foreign tax credit. Paragraphs 4, 5, and 6 define the terms "pensions and other similar remuneration", "annuities", and "alimony" as used in this Article. A pension provided in the form of an annuity shall be taxed as a pension.
